SENATE FINANCE COMMITTEE March 27, 2014 9:17 a.m. 9:17:51 AM CALL TO ORDER Co-Chair Kelly called the Senate Finance Committee meeting to order at 9:17 a.m. MEMBERS PRESENT Senator Pete Kelly, Co-Chair Senator Kevin Meyer, Co-Chair Senator Anna Fairclough, Vice-Chair Senator Click Bishop Senator Mike Dunleavy Senator Lyman Hoffman Senator Donny Olson MEMBERS ABSENT None ALSO PRESENT James Armstrong, Staff, Senator Pete Kelly; Diane Barrans, Executive Director, Alaska Commission on Postsecondary Education, Department of Education and Early Development, and Executive Officer, Alaska Student Loan Corporation, Department of Education and Early Development; Senator Lesil McGuire; Jesse Logan, Staff, Senator Lesil McGuire; Paul Fuhs, Former Board Chairman, AIDEA, Board Chairman, Marine of Alaska, Juneau; Sarah Lukin, Chief Operating Officer, PT Public Policy LLC, Juneau; Ron Long, City of Seward, Juneau; Senator Cathy Geisel; Jane Conway, Staff, Senator Cathy Geisel; PRESENT VIA TELECONFERENCE Mark Davis, Deputy Director, Alaska Industrial Export Authority (AIDEA), Anchorage; Nancy Sanders, Executive Administrator, Alaska Board of Nursing; Sara Chambers, Administrative Operations Manager, Division of Corporations, Businesses, and Professional Licensing, Department of Commerce, Community and Economic Development; Beth Farnstrom, Chair, Alaska State Board of Nursing, Anchorage; Patricia Senner, Professional Practice Director, Alaska Nurses Association, Anchorage; Jana Shockman, President, Alaska Nurses Association, Anchorage; SUMMARY SB 104 APPROPRIATIONS FROM THE DIVIDEND FUND SB 104 was SCHEDULED but not HEARD. SB 140 AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND SB 140 was HEARD and HELD in committee for further consideration. SB 166 BOARD OF NURSING; NURSES CSSB 166(FIN) was REPORTED out of committee with a "do pass" recommendation and with a previously published zero fiscal: FN2(CED). SB 195 POSTSECONDARY EDUCATION LOANS/GRANTS CSSB 195(FIN) was REPORTED out of committee with a "do pass" recommendation and with a new fiscal impact note from the Department of Education and Early Development. HB 199 VPSO FIREARMS HB 199 was HEARD and HELD in committee for further consideration. CSHB 266(FIN) APPROP: OPERATING BUDGET/LOANS/FUNDS CSHB 266(FIN) was HEARD and HELD in committee for further consideration. CSHB 267(FIN) APPROP: MENTAL HEALTH BUDGET CSHB 267(FIN) was HEARD and HELD in committee for further consideration. CS FOR HOUSE BILL NO. 266(FIN) "An Act making appropriations for the operating and loan program expenses of state government and for certain programs, capitalizing funds, and making reappropriations; and providing for an effective date." CS FOR HOUSE BILL NO. 267(FIN) "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; and providing for an effective date." 9:18:14 AM Co-Chair Kelly discussed housekeeping. 9:18:34 AM Co-Chair Meyer MOVED to ADOPT the proposed committee substitute for HB 266, Work Draft 28-GH2671\E (Wallace 3/26/14) as a working document. Co-Chair Kelly OBJECTED for the purpose of discussion. Co-Chair Meyer MOVED to ADOPT the proposed committee substitute for HB 267, WORK DRAFT 28-GH2673\R (Wallace 3/26/14) as a working document. 9:19:31 AM Co-Chair Kelly OBJECTED for the purpose of discussion. 9:20:27 AM AT EASE 9:21:56 AM RECONVENED 9:22:05 AM Mr. Armstrong stated that the 4 page narrative in members' packets(copy on file) explained the 19 changes that had been incorporated into the new committee substitute (CS) for HB 266 and HB 267. He noted that the reports could be found on the Legislative Finance website. He reviewed the changes: Commerce, Community and Economic Development: Community and Regional Affairs Community and Regional Affairs Page 5 Lines 13-14 Increase $50,000 (UGF) -provides necessary UGF for Kawarek Inc. to provide sufficient match for the Federal Aviation Administration funding   Commerce, Community and Economic Development: Corporations, Business and Professional Licensing Page 6 Lines 4-7 Intent Language -provides direction to find efficiencies and cost savings measures while also limiting the burden of the licensing process on license holders   Commerce, Community and Economic Development Economic Development (Tourism Marketing): Page 6 Line 10 & 19 Reduce $800,000 (UGF) -reduces program by 5%   Education and Early Development: K-12 Support Foundation Program Page 10 Lines 11-20 Intent -provides policy guidance to school districts utilizing K-12 support funding Education and Early Development: Teaching and Learning Support Student and School Achievement Page 10 Lines 31-32 Increase $750,000 (UGF) -provides Innovative Grant funding Environmental Conservation: Water Water Quality Page 14 Lines 3-4 Increase $400,000 (UGF) -partially restores funding associated with State Primacy for Dredge and Fill Activities Health & Social Services: Public Health Health Planning and Systems Development Page 19 Lines 17-30 Increase $615,500 (UGF) -partially restores funding for the SHARP Program Intent language added -provides additional guidance to the program Health & Social Services: Senior Disability Services Senior Community Based Grants Page 20 of HB 266 and Page 5 of HB 267 Lines 15 & 20 of HB 266 and Lines 28 and 33 of HB 267 Increase $345,000 UGF -provides grant funding for the senior independent living program ($200,000 GF/MH for this program is included in HB 267) Increase $200,000 for a one-time grant to the Mat-Su Aging and Disability Resource Center Public Safety: Alaska State Troopers Page 29 Lines 29-32 Intent -provides that funding may not be used to assist federal employees in enforcing the Marine Mammal Protection act of 1972 as it relates to sea otters in Southeast Alaska. University of Alaska: Fairbanks Campus Page 38 Lines 3 and 29 Increase $500,000 -provides funding to organize a fossil fuel integration program Commerce, Community and Economic Development: Alaska Seafood Marketing Institute Alaska Seafood Marketing Institute Page 60 Lines 11-13 Increase $388,600 (UGF) -restores Y2 of the subcommittee's reduction Department of Natural Resources New Language Section: Page 63 Lines 4-8 Limits the replacement of federal funding with UGF for declining federal grants for the Hot Shot firefighting crews University of Alaska: New Language Section Page 63 Lines 19-22 $12,500,000 -Contingent Appropriation -this language only takes effect if the existing power plant at the Fairbanks Campus utilizes diesel as its primary fuel source for 60 consecutive days Office of the Governor: Statewide Fuel Trigger Page 65 Lines 15-16 This amends the University of Alaska's allocation formula from 10 percent of the total plus or minus three percent to 15 percent of the total plus or minus five percent. This change reflects recent allocation disbursement within the fuel trigger formula. Agency-Wide Technical Additions to the Numbers Section: In-State Natural Gas Pipeline Fund Technical Legislative Finance fund code amendment designed to meet accounting requirements for separation of the Alaska Gasline Development Corporation budget from money spent by other agencies at the request of AGDC. 9:27:57 AM Changes incorporated into  Senate CS for CS for House Bill 267 (FIN) 28-GH2673\R:  Health & Social Services: Behavioral Health Services to the Seriously Mentally III Page 3 Line 27 Increase $75,000 UGF -replaces MHTAAR funding with UGF Health & Social Services: Behavioral Health Suicide Prevention Council Page 4 Line 21 Increase $60,000 -provides additional funds for the suicide prevention program needs Health & Social Services: Senior Disability Services Senior Community Based Grants Page 5 Lines 28 and 33 Increase $200,000 UGF -provides grant funding for the Aging and Disability Resource Center Revenue: Alaska Mental Health Trust Authority Mental Health Trust Operations Page 7 Lines 15-16 Increase $500,000 -provides funding for a Fetal Alcohol Spectrum Disorders Media Campaign 9:28:51 AM AT EASE 9:33:12 AM RECONVENED 9:33:26 AM Co-Chair Meyer pointed out to the committee that the CS reduced the tourism marketing money by $800,000, but noted that the money for the Alaska Seafood Marketing Institute's marketing program was increased on page 2 of the bill; he assumed that this change put the two on equal footing. Co-Chair Kelly replied that in the spirit of balance both programs had been reduced the same amount. Mr. Armstrong added that both programs had taken a 5 percent reduction within the CS. 9:34:07 AM Co-Chair Kelly WITHDDREW his OBJECTION. There being NO further OBJECTION, Work Draft 28-GH2671\E (Wallace 3/26/14) and WORK DRAFT 28-GH2673\R (Wallace 3/26/14) were ADOPTED as a working documents for HB 266 and HB 267. Co-Chair Kelly noted that amendments to the CS would be taken up the following day. Mr. Armstrong stated that there would be an amendment that dealt with the 4 contracts that had been settled, which was not contained within the current CS. 9:35:14 AM Mr. Armstrong expressed appreciation to Amanda Ryder and David Teal for their help on the two budget bills. 9:35:54 AM AT EASE 10:09:21 AM RECONVENED Co-Chair Kelly announced an amendment by Senators Hoffmann Olson and Bishop. Co-Chair Kelly requested to be added as sponsors to Amendment 1. 10:09:58 AM Senator Hoffman MOVED to ADOPT Amendment 1: OFFERED IN: The Senate Finance Committee TO: HB 266 / HB 267 OFFERED BY: Senator Hoffman, Senator Bishop, Senator Olson DEPARTMENT: Fund Capitalization APPROPRIATION: Fund Capitalization (no approps out) ALLOCATION: Community Revenue Sharing Fund AMEND LANGUAGE SECTION 25(b) AS FOLLOWS: Sec. 25(b): (b) An amount equal to 20 percent of the revenue collected under AS 43.20.030(c), not to exceed $53,000,000 [50,000,000], is appropriated from the general fund to the community revenue sharing fund (AS 29.60.850). EXPLANATION: This amendment adds $3 million UGF to the Community Revenue Sharing Fund (from $50 million to $53 million). This amendment is $3 million above the Senate's budget and $7 million below the Governor's request. 10:10:07 AM Co-Chair Meyer OBJECTED for the purpose of discussion. Senator Hoffman explained that the amendment increased the revenue sharing by $3 million. The original request by the governor had been for $60 million, the subcommittee had recommended a funding level of $50 million; the amendment would add $3 million and would result in a number that would be $7 million below the governor's budget. 10:10:37 AM Mr. Armstrong explained that the reduction in 2014 would have no effect on FY15 revenue shares. He said that the $53 million would take effect in the next cycle; $57.6 million would be distributed in FY16, $56.1 in FY17, $55.1 in FY18 and $54.4 in FY19. 10:11:29 AM Co-Chair Kelly explained that the amendment considered public testimony on the legislation regarding municipal assistance and the concern for life, health, and safety issues. 10:12:04 AM Co-Chair Meyer WHITHDREW his OBJECTION. There being NO further OBJECTION, Amendment 1 was ADOPTED. CSHB 266(FIN) was HEARD and HELD in committee for further consideration. CSHB 267(FIN) was HEARD and HELD in committee for further consideration. 10:12:21 AM AT EASE 10:14:31 AM RECONVENED Co-Chair Kelly handed the gavel over to Co-Chair Meyer. SENATE BILL NO. 195 "An Act relating to the membership and authority of the Alaska Commission on Postsecondary Education; relating to the Alaska Student Loan Corporation; relating to teacher education loans; relating to interest on and consolidation of postsecondary education loans; relating to Alaska supplemental education loans; relating to AlaskAdvantage grants; relating to the Alaska family education loan program; relating to postsecondary educational institutions; and providing for an effective date." 10:15:42 AM DIANE BARRANS, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, AND EXECUTIVE OFFICER, ALASKA STUDENT LOAN CORPORATION, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, expressed appreciation for the legislation. She opined that it had been two decades since a substantive review of loan limits and the policies that guided the state's financial aid administration. 10:16:21 AM Senator Dunleavy queried that language in the bill that stated that a person representing private higher education had to be non-profit. Ms. Barrans replied that the membership of the commission was comprised of representative from both the for-profit and non-profit sectors. She said that the language allowed the governor the latitude to choose any of the institutions in the sector, rather than being limited to a member of the board of trustees. 10:17:31 AM Senator Dunleavy wondered if there was a seat reserved for for-profit educational entities. Ms. Barrans replied in the affirmative. 10:17:38 AM Senator Dunleavy inquired if there was a practice of loaning more willingly for certain categories of educational entities. Ms. Barrans responded that that there was not an express policy relative to the question. She said that loan limits were divided between collegiate and vocational institutions, without speaking to whether those institutions were non-profit or for-profit. She explained that rating agencies requested a break out of the portfolio of lenders who financed their loans in the financial market in order to determine, by educational sector, what portion of the loans when to one or the other. If a portfolio reflected a high proportion of proprietary lending, it could result in higher overcollateralization requirements because of the historical trend of higher default rates associated with vocational schools, particularly in the for-profit sector. 10:20:45 AM Vice-Chair Fairclough requested that Ms. Barrans discuss the 15 credit per semester requirement in order to access funds. Ms. Barrans said that the reason the 15 credits per term had been proposed, rather than 30 credits per year, was because it was a student's enrollment level on each term that determined the amount of loan that they could receive. She stated that there was flexibility; if a student enrolled and met the full-time requirement of 12 credits for fall, but then increased their credits to 15 for spring, they could qualify for the higher amount for the spring term. She noted that if a student enrolled for full- time of 12 credits, and did not complete the 12 credits in the term, the student could make up the credits during the academic year for the purpose of continuing eligibility for the next year's loan. She stated that the department worked to ensure that students were completing the number of credits that their loan was awarded for without risking over-awarding students, which could be a risk if the loan were awarded at the beginning of the year for a higher amount based on the student's best intentions. 10:22:53 AM Co-Chair Meyer queried the default rate for Alaska student loans. Ms. Barrans replied that the most recent published rate was slightly higher than 6 percent. She said that looking back over the last 10 years, the rate had been as low as 3.8 percent, peaking in 2008 and 2009 at about 7.5 percent, but gradually rising as the economy has recovered. 10:23:28 AM Co-Chair Meyer understood that Alaska's default rate was lower than the national average. Ms. Barrans replied that the default rate for the federal loan program was substantially higher than Alaska. She noted that the federal loans had no credit underwriting criteria; taxpayers underwrite the credit for federal loans. Co-Chair Meyer probed the difference between the two loans. Ms. Barrans responded that if the barrower did not have a credit score of at least 680, they would need a credit worthy co-signer. 10:24:14 AM Co-Chair Meyer discussed the new fiscal note. He understood that with the purchase of new software with $460,000 capital dollars the state would see a savings of $82.8 thousand. Ms. Barrans replied that the savings would be approximately $30,000 per year due to reduced software maintenance. She relayed that the current system was inadequate to support the number of student receiving student loans. 10:25:40 AM Co-Chair Meyer inquired if the expense was reflected in the governor's FY15 capital budget. Ms. Barrans replied that it was not. 10:25:51 AM Vice-Chair Fairclough offered that the investment of capital would save the state money in the long run and provided a smoother streamlined process for the students that were accessing student loans. 10:26:25 AM Co-Chair Kelly MOVED to REPORT CSSB 195(FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSB 195(FIN) was REPORTED out of committee with a "do pass" recommendation and with a new fiscal impact note from the Department of Education and Early Development. 10:26:49 AM AT EASE 10:30:05 AM RECONVENED SENATE BILL NO. 140 "An Act creating the Arctic infrastructure development program and fund in the Alaska Industrial Development and Export Authority." 10:30:53 AM SENATOR LESIL MCGUIRE, introduced SB 140 and related that the bill was a result of work that had been done by the Alaska Arctic Policy Commission. She relayed some background on the make-up and duties of the commission. She shared that over the course of one year the commission had compiled a preliminary report, which could be found at akarctic.com. The bill would develop and contrive a funding and implementation mechanism for constructing and maintaining Arctic infrastructure and economic development. She asserted that the Alaskan Arctic was one of the least developed areas of the state, yet one of the most open and ready for opportunity. The intent of the legislation was to develop the vision statements, policy statement and strategic recommendations of the Alaska Arctic Policy Commission. She contended that Arctic policy was part of a global discussion and that the state was behind the other seven Arctic Nations when it came to infrastructure development. She relayed that Alaska has the longest coastline in the United States; Alaska's Arctic coastline extends from the Northeastern Canadian border, west across the Arctic Ocean, and south covering western Alaska, then 1500 miles down to the Aleutian Chain. She stated that within the entire coastline the only deep draft port was in Dutch Harbor. She lamented that the lack of infrastructure in Unalaska limited any support for new traffic coming from the Northwest Passage. She added that telecommunications, emergency and spill response, search and rescue, national defense and other critical needs were all addressed within the legislation. Senator McGuire proclaimed that Alaska was blessed with untold natural resource wealth in the Arctic that would provide opportunity for future generations, but nothing could be done without sufficient infrastructure. She shared that there was an estimated $100 billion in private funding that was waiting to be invested in the Arctic, which was considered to be one of the last great economic global opportunities. 10:38:07 AM Senator McGuire provided a further sponsor statement: Globally, all eyes are on the Arctic. The World Economic Forum has recently identified Arctic Infrastructure development as one of the top Four (4) challenges facing the regions. Alaska's future is in the Arctic, and in order for Alaskans to capitalize on the incredible opportunities and overcome the significant challenges that this region presents, we must begin to build infrastructure now. Aside from a few areas in Norway and the Russian Federation the Arctic as a whole remains vastly underserved by transportation, ports, communication, emergency response, defense and other critical infrastructure. For further development to occur, which Alaskans deserve, both public and private interests must come together to boost the investment in the Arctic. For these reasons I have introduced Senate Bill 140, Arctic Infrastructure Development Fund ("AIDF"). The CS SB 140 (L&C) expands AIDEA's tool bag by extending the same authority for loans, loan guarantees, bonds and bond guarantees that it currently utilizes in the energy sector via the SETS fund (AS 44.88.650- 690) in order to develop Infrastructure in the Arctic. AIDEA used SETS to facilitate the financing of the Interior Energy Project. This tool helps to create the public- private partnerships that are needed to encourage large investment in capital intensive infrastructure. CS SB 140 (L&C) extends AIDEA's existing power to finance, or facilitate the financing of projects to the realm of Arctic Infrastructure by granting the Authority the ability to: 1. Insure project obligations and guarantee loans or bonds for projects. 2. Defer principle payments and capitalize interest. 3. Offer financing terms of up to 40 years. 4. Enter into lease agreements, sales-lease-back agreements, build-operate-transfer agreements and other agreements to finance Arctic infrastructure projects. 5. Finance certain aspects of Fisheries in the Arctic. Many of these powers already provide flexible terms that can reduce the ultimate cost of energy (via the SETS program) to consumers, and if it can work in the energy realm, it can work for infrastructure. However, CSSB 140 (L&C) also requires legislative approval for investments that are more than one-third of a project's capital costs or if a loan guarantee exceeds $20 Million. By subjecting certain investments to legislative approval, CSSB 140 (L&C) maintains an appropriate level of due diligence for projects. By making financing available we can empower communities and attract a global pool of investment that is an alternative to the traditional grant model that too often underfunds projects and leads to delays. Relying on credit also ensures that sponsors have some skin in the game and a stake in the project's success. Most importantly, we expand the arena of where Alaskan assets are working in order to grow our own economy. Currently, many of Alaska's savings accounts are invested in stocks and bonds that drive economic activity outside of Alaska. CSSB 140(L&C) suggests instead that some of those savings be invested here in Alaska through AIDEA, not as blank checks for development, but as investments for our future in Arctic Infrastructure. For the purposes of this Act, I propose that this program and fund focus infrastructure development in the geographical definition of the Arctic as laid out in Arctic Research and Policy Act (amended 1990). That definition includes the area of the State of Alaska north of the Arctic Circle, north and west of the boundary formed by the Porcupine, Yukon, and Kuskokwim Rivers, all contiguous seas, including the Arctic Ocean, and the Beaufort, Bering, and Chukchi Seas, and the Aleutian chain. With AIDF I am proposing that the State expand AIDEA's existing authority to finance, or facilitate the financing of, Arctic Infrastructure. 10:43:01 AM Senator McGuire asserted that it would be irresponsible to ignore the obligation of the state to develop infrastructure in the Arctic. 10:43:41 AM Co-Chair Meyer requested that the sponsor list any sideboards that had been written into the bill. 10:44:02 AM JESSE LOGAN, STAFF, SENATOR LESIL MCGUIRE, offered a sectional analysis (copy on file): Section 1. AS 44.88.088(a) is amended o This section establishes that the Alaska Industrial Development and Export Authority (AIDEA) shall adopt a policy for payment of a dividend from the Arctic infrastructure development fund (AS 44.88.810) to the state each fiscal year. o The dividend may not be less than 25% nor more than 50% of the net income of the fund. o This puts the AIDF in-line with AIDEA's sustainable energy transmission and supply development fund (SETS) (AS 44.88.660). Section 2. AS 44.88.088(b)(2) is amended o This section defines "net income" for the purposes of this chapter. o The definition now includes the AIDF. Section 3. AS 44.88.088(b)(3) is amended